Substituted purchaser applications can save you money in certain situations.

Substituted purchaser applications: the expensive mistake to avoid

You probably know that substituted purchaser applications can save a buyer thousands in stamp duty when adding a related person to the transaction – but did you know that non-married couples can only use this method if they have been living together for at least two years?

Assuming that all partners are eligible can be a costly mistake.

For example, one couple that are currently in the process of purchasing a house made an $11,000 error when signing the Offer and Acceptance.

Daniel (names changed) made an offer on a property under his own name, intending to move in with his partner, Lucie. However, he soon discovered that due to his bank’s lending criteria, finance would only be approved if he bought it in conjunction with someone else.

His agent told him that this wouldn’t be a problem, because he could add Lucie to the transaction using a substituted purchaser application.

Unfortunately, this was not the case. According to the Duties Act 2008, section 42(2):

Duty is not chargeable on the transfer of dutiable property to a transferee under an agreement for the transfer of dutiable property if – (a) when liability for duty on the agreement arises, the transferee and the purchaser of the property under the agreement are related as referred to in section 43

Section 43 states that the purchaser’s spouse or de facto partner is, for the purposes of section 42(2)(a), related to the purchaser. The Department of State Revenue defines a de facto partner as someone who has been living with the purchaser for at least two consecutive years.

Since Lucie and Daniel had been living together for around six months, they were not eligible for a stamp duty exemption.

After we confirmed with the Department of State Revenue that this was the case, Daniel and Lucie considered their options. Not wanting to lose the property if finance was declined due to Daniel’s circumstances, they decided they were prepared to pay the extra stamp duty that was required to add Lucie as a purchaser. The extra stamp duty was over $11,000.

Cases such as these highlight the importance of signing the contract correctly from the start. By checking with their broker whether or not they would need to purchase together, Daniel and Lucie could have avoided thousands of dollars in extra stamp duty.

Although there is not a lot you as the agent could do to prevent this situation, you may wish to have a chat with your buyers about whether they’ve spoken to a broker or lender about how they will secure finance. Ensure they know that ‘de facto’ couples can only use a substituted purchaser application if they have been living together for at least two consecutive years.

Image by 3dom via Flickr.